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Thursday, 21 May 2015

Organised crime, criminal enterprises and banking

Yesterday afternoon, I received a NY Times News Alert stating: "Adding another entry to Wall Street’s growing rap sheet, five big banks have agreed to pay more than $5 billion and plead guilty to multiple crimes related to manipulating foreign currencies and interest rates, federal and state authorities announced on Wednesday." Immediately, an FT Breaking News email alert arrived quoting some trader transcripts:  "If you ain’t cheating, you ain’t trying".

To be honest I didn't want to write about banking anymore as I am growing sick and tired of reading this kind of news. Then I suddenly realised that I am implicitly already accepting that this kind of behaviour is inherent to banking. But is this behaviour really inherent to banking? Or is this kind of behaviour inherent to organised crime? Or is it inherent to both?

The FBI defines a criminal enterprise as a group of individuals with an identified hierarchy, or comparable structure, engaged in significant criminal activity. The FBI defines organized crime as any group having some manner of a formalized structure and whose primary objective is to obtain money through illegal activities. (Source: FBI). As always, the devil is in the details (i.e. semantics).

Why does my mind - and that of many others - still treats banks as financial institutions rather than as criminal enterprises engaged in organised crime??

Partly, as I have been working in banking myself for 5 years. Wouldn't I have noticed this??
Partly, as these criminal acts relate to individuals rather than the entire banking population.
Partly, as I have difficulty in accepting that the banking culture is rotten to the bone.
Partly, as I am "naive" and trust people until proven guilty (presumption of innocence).

Yet, these mounting plea bargain convictions speak a different story all together. Moreover, these penalties do not hurt them in the medium term, let alone long term. I can only hope that these penalties are non tax deductible items in their corporate income tax returns. 

It would actually surprise me if any of these penalties would relate to the core banking purpose, being savings and loans. Even the US subprime mortgage fraud does not relate to the core lending activity as these mortgages were packed, sliced, and traded through RMBS and CDO trading and investment products. Probably all penalties ultimately relate to investment and trading activities. One could however argue that the LIBOR fraud is in the savings and loans area.

My fundamental concern is that banks have taken the financial system into hostage and use it as a shield to defend themselves against outside attacks. As long as banks have this hostage shield, the authorities cannot close their businesses. In any other situation, a criminal enterprise would be closed.

Since 2008, billions of bailout money went into the banking sector in order to rescue these banking enterprises. The reason being that the financial system is like a core public utility. No one seems willing to take the ultimate consequence of that by freeing this hostage from banking enterprises.

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies. Groucho Marx